It’s almost April 1. That means its required minimum distribution (RMD) time for senior Americans. Those who turned 70½ last year face the deadline for taking the first RMDs from their qualified retirement plans. Their older cohorts should be considering their RMD strategies for the year.

When Congress created qualified retirement plans and gave them tax breaks, it placed some limits on them. One of those limits is the RMD. Congress was willing to help people save for their retirements, but only for their retirements. It wanted to limit the ability to accumulate a tax-deferred pile of money and pass it on to the next generation.

That’s why after reaching age 70½, beneficiaries of IRAs and many other qualified retirement plans have to take annual RMDs from their IRAs. They are required to begin spending down their IRAs.

Your RMD is determined at the beginning of the year. The account values as of December 31 of the previous year are used to compute RMDs for the current year. For example, the December 31, 2017 values are used to compute 2018 RMDs. In IRS Publication 590-B Distributions from Individual Retirement Arrangements (IRAs), available free on the IRS web site, you go to the Appendices and find the appropriate life expectancy table. Most people use Table III. You find the appropriate factor or “Distribution Period” for your age and divide that into the IRA account value as of the previous December 31. The result is your RMD for the year.

The RMD is recalculated each year based on the account value as of the most recent December 31 and your new life expectancy factor.

Nothing that happens in an IRA during the year changes the RMD for the year. If there’s a big drop in your investments, the RMD still has to be based on the previous year’s ending value. (Congress made a temporary exception to that during the financial crisis.)

A common error is thinking you can take an RMD from one retirement account and roll it over to another retirement account. For example, some people take a distribution from an IRA and deposit the money in another IRA. Or they take an RMD from a 401(k) account and deposit it in an IRA. These transactions aren’t considered rollovers. They are contributions, and you can’t make contributions to a traditional IRA after age 70½.

An RMD also can’t be deposited in a Roth IRA and treated as a conversion. In a year you do a conversion, you first have to take the RMD. You can convert the rest of the traditional IRA to a Roth IRA after that.

Bottom line: It’s not an RMD if you roll it over to another qualified retirement account.

The RMD rules also can be complicated when someone has multiple accounts.

When you have more than one IRA, you first calculate the RMD for each IRA. Then, you can add the individual RMDs to determine your aggregate RMD. Once you have the aggregate IRA total for the year, you can take that amount from the IRAs in any ratio you want as long as by December 31 the total distributions at least equal the aggregate RMD for the year.

You can take it all from one IRA. You can take equal amounts from each IRA. You can use the RMDs to rebalance your portfolio. For example, if you own more stocks than you want and one IRA owns only stocks, you can reduce your stock holdings by selling stocks from that IRA and using the cash to take the RMDs. Some people with multiple IRAs decide they want to simplify their financial lives over time by taking their aggregate RMD from one IRA until it is depleted, and then draw down another IRA.

The multiple-account rule is different for non-IRAs, which many people don’t realize.

Suppose you have two IRAs and two 401(k) accounts with former employers. You can determine the aggregate RMD for the IRAs and take it from the IRAs in any proportion you want. With the 401(k)s (and other employer plans), however, you have to calculate the RMD separately for each account and take an account’s calculated RMD from that account. There is no aggregation.

SEP and SIMPLE plans are treated as IRAs for this rule. You can aggregate these accounts with your traditional IRAs and take the RMD from them in any ratio you want.

If you have more than one 403(b) plan account, the rules are the same as for IRAs. You can aggregate the RMDs and take the total from the 403(b) accounts however you want. But you can’t aggregate the 403(b) RMDs with RMDs from other types of accounts. For example, if someone has two IRAs and two 403(b)s, the IRAs can be aggregated, and the 403(b)s can be aggregated. But the IRAs and 403(b)s can’t be aggregated into one RMD.

The general rule: You can’t aggregate different types of accounts for RMD purposes.

Inherited IRAs also have RMDs, and those rules are different.

The RMD for an inherited IRA can’t be aggregated with other IRAs or retirement accounts. The RMD for an inherited IRA must be calculated separately and taken from that IRA each year.

For example, you can direct the IRA custodian to transfer a specific number of shares of a mutual fund to a taxable account at that firm. That way, your asset allocation doesn’t change, and you might not incur any trading costs. The value of the shares on the day they are transferred is the amount of the RMD and is included in your gross income for the year. It doesn't matter that the value of the shares will change the rest of the year. In the taxable account, your tax basis in the shares also is their value on the date of the distribution.

There’s a lot of discussion about the best time of year to take RMDs. I offer two practical reasons for taking RMDs early in the year.

One reason is that an RMD has to be taken for the year of a person’s death regardless of when the date of death was. Often, estate executors don’t know this rule or have trouble determining if the RMD was taken. The result can be that the IRS later determines an RMD wasn’t taken and assesses a penalty. If you take the RMD early in the year, this won’t happen.

A second practical reason is things can happen during the year. You might have an illness, family emergency, or other event that distracts you. Plus, IRA custodians are very busy at the end of the year. It’s possible you might forget to order the RMD before December 31, or the custodian might be so backlogged that the distribution request isn’t processed in time.

The penalty for an RMD that is missed or too low is 50% of the amount that should have been taken but wasn’t. It’s important to know the RMD rules and apply them to each account you have. That’s why it’s a good idea to start your RMD planning early.

I am the editor of Retirement Watch, a monthly newsletter and web site I founded in 1990. I research and write about all the financial issues of retirement and retirement planning, for both those planning retirement and already retired. I cover estate planning, Medicare, lon...